Thursday, 2 August 2012

With the indexes opening significantly lower, the VIX could have been expected to open up 7-10%. Yet it opened flat..and soon turned marginally red. I'm really not sure what to make of it. It is something I've seen before, but its pretty rare to see a red VIX whilst the market has swung from sp+10 to -13 in pre-market.

VIX'60min

VIX'daily

VIX, weekly

Summary

A bizarre day in VIX land, and the close was just as bizarre, -7%

Bears will need to see the VIX +21 to confirm the declining indexes, amid increasing concern about the underlying economy.

*most VIX calls were actually up today, which probably tells you something is certainly not right with the quoted VIX today.

Despite the real mess that was the opening 90minutes - with a very weak VIX, the underlying weakness is again showing itself in the broader indexes.

Most important of all..the daily charts are clearly confirming a rollover which started yesterday. Remember that the last down cycle was ruined when Mr Draghi made his Thursday morning comments. Lets see whether this time....is different.

sp'daily

VIX, daily

Summary

Bears need to see a close <1340 sometime in the next few days. 1325 remains an even more important target.

As it is..VIX remains completely bizarre, and is only just now marginally higher.

So...Mr Draghi upsets the market...the Euro falls hard, the sp' swings lower by 20pts....and we open with the VIX..red. It was a severely bizarre open for the VIX, and now we've seen a pretty hard reversal, many stocks are already green.

I'm not one to say it often, but this sure smells of the infamous PPT doing their meddling. I could theorise they wanted to make it look like Draghi did not collapse the markets. How they managed to open the VIX flat/marginal red though, right from the open, I can't fathom.

sp'60min

vix'60min

Summary

We'll probably never know for sure if there are covert teams out there with unlimited balances to 'kill any decline'..at will. Yet, considering everything...its looking like 'they' might have been out there this morning.

The market is clearly rattled from the lack of action from Mr Draghi. Yet...more than anything this morning, whats up with the VIX ? Dow was -100, and VIX -2% Huh? I've seen plenty of weird VIX action over the years, but this really is one of the strangest VIX openings I've seen.

VIX, 60min

sp'60min

Summary

VIX is not confirming the opening falls, and remains a very major problem for those bears seeking major falls across the day. I'm really not sure what to make of it.

Regardless, what is clear, the daily charts ARE rolling over, so I'd look for declines into the Friday close, but it will probably be a real chop-fest.

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stock of the morning...

KCG, who are paying the price for their incompetence and dark-sided use of the auto-trading algo-bots.

With the FOMC failing to announce further QE today, the question remains, was 1391 the top of this cycle?

sp'daily5

We have the very first sign of a rollover on the daily MACD cycle, and we're now a moderate 16pts below the recent peak. Even a move to 1340 will not break the key lower channel line though. So, bears really should not get overly excited, even if we're trading in the low 1340s this Friday afternoon.

Only with a few closes in the 1330s..and preferably <1325, can the bears start to consider the more bearish outlook.

sp,daily4 - the 'more bearish outlook'

The above chart is indeed the somewhat bearish outlook .It is pretty much as bearish as anyone could argue for right now.

The problem the bears face is that in each of the previous collapse waves (May 2010, and July/August 2011) both had a noticeable catalyst which really spooked the main market. In 2010 we had the first concerns about Greece, and last summer we had the concerns over the US fiscal deficit/debt mountain.

So, the bears really need a catalyst to whack this market back through 1340, then 1325..and ultimately the strong 1310/00 resistance zone. I would think most doomsters could reel off a list of dozens of 'big ticking problems' out there, but, I do admit, for any major down cycle to occur, bears need a motivating issue in the days and weeks ahead. At the moment, other than 'Mr Market waking up..and realising a US recession is likely', I can't see anything in the near term to cause 'severe market upset'.

One final chart to close the day...

VIX, weekly

VIX weekly remains one of my favourite bigger picture charts, and you can clearly see, if we do see VIX +22, then it'd be suggestive there is a reasonable chance of at least a mini explosion to around 35/40 within the next 3-6 weeks.
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Both Thursday and Friday are filled with more econ-data, and we have the ECB who will doubtless do some meddling (even if its just words) this Thursday.

The initial first target is clear. Bears need a break under 1340, bulls merely need to contain things within the channel.

Today was certainly a bit of a choppy one. The close was not exactly inspiring for the bears, the declines were again only relatively moderate.

Yet, on the daily MACD cycle, we are starting to rollover, as lead by both the transports and the Rus'2000 small cap.

IWM

Sp

Transports

Summary

A very bearish day for the tranny, which even put in a nice close below the hugely important 5000 level. Two more daily closes under 5k..would be a real warning that the long awaited wave'3 lower might finally be underway.

See the MACD cycle on the Sp' closeup chart, it IS rolling over. Bears should arguably seek at least one major down day of sp -20/25pts either tomorrow or Friday. So..the target would be somewhere around 1350..preferably in the 1340s.

A close in the 1330s at any time would break the lower channel, and portend for possible severe falls next week.
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A little more later.

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I (Permabear Doomster) am not a financial advisor as officially endorsed by any national government, corporation, financial/securities regulatory authority in neither the USA, UK, or any part of the world. None of the posts/comments in these pages are intended as trading/investment advice. They are merely my opinion on where a given market/stock and any other 'instrument, index, etc' may move at any future time.